ECON 104 Lecture Notes - Lecture 30: Null Hypothesis, Nonlinear Regression
Document Summary
So far we have discussed relationship between 2 variables. There"s a possibility that a class size reduction doesn"t have same effect on test scores. Smaller classes can help more if there are more students learning english as a second language. The ratio of change in test score/ change in str might depend on %el. Most of the time, the test score does depend on multiple factors. Regress y on 2 binary variables (d1, d2) Beta 1 = changing d1 from 0 to 1. Since effect of changing d1 from 0 to 1, it doesn"t depend on what d2 is. Introduce dependent by including new term called the interaction term of d1 * d2. Run a nonlinear regression with a third regressor. Compare expected value of y i if d i = 0 vs expected value of y i if d i = 1. Then subtract the expected values from each other.
